OECD Releases First CbC Reporting Peer Reviews

The OECD has released the first peer reviews of the country-by-country (CbC) reporting initiative, reporting that practically all countries that serve as headquarters to large multinationals have introduced new transfer pricing documentation requirements to improve transparency.

Country-by-country reporting will see tax administrations worldwide collect and share detailed information on all large MNEs doing business in their country. Information collected includes the amount of revenue reported, profit before income tax, and income tax paid and accrued, as well as the stated capital, accumulated earnings, number of employees, and tangible assets, broken down by jurisdiction. The first exchanges of such reports are slated to begin in June 2018. More than 1,400 bilateral relationships are already in place for CbC exchanges, with more to come throughout the year.

CbC reporting is a minimum standard of the OECD/G20 Base Erosion and Profit Shifting initiative, which aims to equip governments with the domestic and international instruments needed to ensure that MNE profits are taxed where economic activities generating the profits are performed, and where value is created.

“The peer review outcomes and the launch of the global exchange of CbC reports in June shows that the BEPS measures are being implemented rapidly, consistently, and globally,” said Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration.

The first annual peer review focuses mainly on the domestic legal and administrative framework, and reflects implementation as of January 2018, the OECD said.

The OECD intends to gradually monitor the domestic legal and administrative framework, the exchange of information framework, and the confidentiality and appropriate use conditions in place in countries over three annual reviews (starting in 2017, 2018, and 2019).

As part of the most recent peer review, the OECD has undertaken:

A comprehensive examination of 95 jurisdictions that are members of the Inclusive Framework (there were 111 as of January 2018 and there are currently 116). A few jurisdictions that were recent joiners of the Inclusive Framework or that faced capacity constraints were not yet included in the process, the OECD said, but their frameworks will be reviewed as soon as possible.

60 jurisdictions have already introduced legislation to impose a filing obligation on MNE groups, with practically all MNE groups expected to be in scope. The remaining jurisdictions are working towards finalizing their domestic legal framework with the support of the OECD.

Where legislation is in place, the implementation of CbC Reporting has been found largely consistent with the Action 13 minimum standard. Some jurisdictions have received recommendations for improvement on certain specific aspects of their legislation and work has already begun to bring the provisions concerned in line with the standard, the OECD said.

The second annual peer review, covering all members of the Inclusive Framework, was launched in April 2018. It will focus on the exchange of information aspects, as well as the confidentiality and appropriate use conditions.

According to the OECD, following the first exchanges of CbC reports, work will begin on analyzing how CbC reports are used by tax administrations in assessing Transfer Pricing and other BEPS-related risks. Building on the guidance “Country-by-Country Reporting: Handbook on Effective Tax Risk Assessment,” released by the OECD in September 2017, this work stream will support jurisdictions to use CbC report data effectively, enabling them to identify areas where the tax risk posed by an MNE group is low and to instead focus resources on those issues where risk is greatest.